Business and Human Rights: a global trend towards mandatory due diligence?

Jerome Bellion-Jourdan
Senior Fellow in Residence, Global Governance Center
Graduate Institute of International and Development Studies

Synopsis: As the world continues to face the COVID-19 health threat and its economic and social impact, the trend towards mandatory human rights due diligence, possibly coupled with environmental due diligence, could contribute to “level the playing field” and to “build back better”. This blog post offers a bird’s eye view of legal developments and dynamics at the national, regional and global levels.

Key words: Business and Human Rights, due diligence, access to remedy, climate change, 2030 Agenda, negotiations, United Nations (UN)

“Oui, a des multinationales responsables » ; « Non, à une initiative irréaliste pour nos entrepreneurs » ; « Business suisse. Conséquences mondiales » These slogans, responding to the “Responsible business initiative – Protecting human rights and the environment”, were displayed on billboards across Switzerland before Swiss citizens casted their votes on 29 November 2020. Despite a tight majority (50,7%) in favour of the initiative, it failed to pass after being rejected by a majority of Swiss Cantons. The initiative was far-reaching and would have introduced new statutory obligations for Swiss businesses, considering not only their own activities, but also the activities of their subsidiaries, suppliers and business partners. The initiative also foresaw that Swiss companies would be liable for damage caused by companies that they control, unless they could demonstrate compliance with their due diligence obligations. Although it did not materialise, this initiative is another milestone in the push towards mandatory due diligence at national, regional and global levels.

Billboards on the ‘Responsible business initiative’ in Switzerland

Legal developments on due diligence at the national and regional levels

States are not off the hook, I wrote in a previous blog post. 2021 will mark the 10th anniversary of the UN Guiding Principles on Business and Human Rights (UNGPs). Speaking at a conference hosted by Germany on “Human Rights and Decent Work in Global Supply Chains,” in October 2020  Prof. John Ruggie, the architect of the UN Guiding Principles, recalled that the UNGPs were “conceived to generate an ongoing interactive dynamic of a smart mix of measures – voluntary and mandatory, national and international –”. Prof. Ruggie noted that “governments, with exceptions, have been a weak link in this dynamic”. The situation may be changing with States taking steps to fulfil their “duty to protect”. When it comes to human rights due diligence, a process that business enterprises should carry out to “identify, prevent, mitigate and account for how they address their adverse human rights impacts” (UNGP15), legislation is increasingly on the cards with potentially far reaching impact on global supply chains.

In Switzerland, the rejection of the Responsible Business Initiative gave way to a counter-proposal approved by the Parliament introducing new – albeit more limited – reporting and due diligence obligations. Several European Union (EU) Member States have adopted legislation. They include France (“Law on the duty of vigilance”) and the Netherlands (“Child Labour Due Diligence”). Germany is likely to follow with a law next year.  Business companies and other stakeholders have warned that a patchy approach to legislation could lead to challenges for compliance and enforcement. This is one of the rationales for an EU-wide legislation, which may become a reality as early as next year.

In times when political leadership has become rare, European Commissioner for Justice Didier Reynders has shown remarkable determination. Speaking at the 9th annual UN Forum on Business and Human Rights on 16 November 2020, Commissioner Reynders confirmed his intention to propose a Directive on Sustainable corporate governance introducing a cross-sectorial mandatory human rights and environmental due diligence. This proposal comes in the wider context of the European Green Deal and the Commission’s Communication on the (COVID-19) Recovery Plan that foresees that sustainability should be further embedded into the corporate governance framework. A consultation process is underway to inform the content of the possible legislation which could also cover other issues such as the Director’s Duty of Care.

European Commissioner for Justice Didier Reynders addressing the 9th UN Forum on Business and Human Rights, online

Without waiting, the European Parliament Legal Affairs Committee has moved forward, under the leadership of Rapporteur Lara Wolters with an ambitious draft Directive requiring mandatory due diligence for “risks posed to human rights, including social and labour rights, the environment, including climate change, and to governance”. It would have a global reach as it “should not be limited to the first tier downstream and upstream in the supply chain but should encompass all suppliers and sub-contractors”. Some 818 amendments were tabled and intense negotiations are underway among political groups. Open questions include whether to leave it to companies to prioritize the risks of adverse impacts as they know best their value chains, or providing a clear list of risks to ensure clarity on possible liability. Another question touches on access to remedy, specifically whether to allow EU Member States to take jurisdiction over matters occurring in third countries where there is inadequate access to justice, or whether this would lead to “forum shopping”.

Moving forward, the European Parliament could adopt a resolution in February 2021 using Articles 47 of the Rules of procedures to submit a formal request to the European Commission. This would coincide with the end of the consultation process set out by the European Commission, which would then propose a draft Directive for adoption by both the European Parliament and the Council of the European Union – representing the 27 Member States. One can expect intense – and possibly lengthy – negotiations among Member States. Ultimately, the Member States would have to transpose the Directive into their national legislation.

Business, civil society and others stakeholders are increasingly engaged in the debate. Contrary to widespread perception, many business companies do not object to the principle of new legislation. Some are even openly in favour of it as I witnessed from co-panellists at recent events such as the Annual General Assembly of the International Code of Conduct for Private Security Providers’ Association and a webinar by the Global Business Initiative for Human Rights and Clifford Chance.  Mary Begg-Saffar, from Total’s Legal Department, for instance noted that despite the fact that Total faces litigation under the French ‘Devoir de vigilance law’, she looked favourably at possible EU-level legislation. Business is increasingly engaged to ensure that any legislation is fit for purpose.

Negotiations in the UN of a legally binding instrument with provisions on due diligence

Would a trend towards mandatory due diligence at the national and regional levels trigger new dynamics in the “treaty process” at the global level? The draft legally binding instrument on the table in the UN Human Rights Council Intergovernmental working group contains clear provisions (Article 6 on “Prevention”) requiring business enterprises to undertake human rights due diligence. It also covers a range of other aspects, such as the rights and protection of victims, access to remedy, legal liability, adjudicative jurisdiction, mutual legal assistance and international judicial cooperation. 

Content of the revised draft legally binding instrument

Despite the COVID-19 pandemic, the 6th session was held from 26 to 30 October in a hybrid format. The reading of each article gave the impression of a “negotiation” with delegations engaging from the floor in Room XX of Palais des Nations or from an online platform. Civil society organisations of the “Treaty Alliance” and business organisations, such as the International Organisation of Employers and the International Chamber of Commerce, also engaged. The fact that the draft was significantly revised did not trigger a drastic change in the dynamics of a process which has thus far lacked traction from States (my blogpost after the 5th session) with several staying away and others like the EU having no mandate to negotiate.

It is unclear as to where the “treaty process” will go. However, Ecuador, the main proponent of this Intergovernmental working group with South Africa when the Human Rights Council established it in 2014, has managed to keep it alive despite the odds. At the opening of the 6th session, Minister of Foreign Affairs and Human Mobility of Ecuador, H.E. Mr. Luis Gallegos, himself a former Chairperson-Rapporteur of this process, stated that “in the long term, it is much better to participate in the debate than to be indifferent to it”. In its statement, the EU mentioned that any legally binding instrument should be “supported by a critical mass of UN members”. Conversely, observers argue that the EU, with its 27 Member States, could bring in such a critical mass if it were to engage in the negotiations. The jury is out as to whether an EU-wide legislation could pave the way for the EU and its Member States to engage in negotiating binding rules at the global level.  

“Due diligence should not be a ‘box-ticking’ exercise”

After years of debate, and at times sterile positioning and opposition between proponents of “non-binding” versus “binding”, “soft law” versus “hard law”, the fundamental question at the heart of the “smart mix” approach: “what works?” is finally being addressed. This simple question is critical. It will help to answer the demands of those who have been or fear to be adversely impacted by the activities of business companies. It will meet the expectations of front-runner companies that are already carrying out due diligence and ready for effective legislation to level the playing field. It will answer the questions of consumers who don’t want to be complicit in child labour, modern-day slavery and deforestation when they buy products or invest in financial portfolios for those who can. The draft report of the European Parliament’s Legal Affairs Committee clearly states: “due diligence should not be a ‘box-ticking’ exercise”. Legal or policy developments must be crafted to be effective if they are to lead to transformative change.  

Anita Ramasastry, Chair of the UN Working Group on Business and Human Rights, addressing the online annual Forum

Connecting the dots between diverse global challenges has also become a necessity for such transformation. At the closing of the annual Business and Human Rights Forum, Anita Ramasastry, Chair of the UN Working Group on Business and Human Rights, echoed the warnings by others before her: “the world is burning, we are in the midst of fighting multiple crises – from climate change, to economic meltdown, to the raging inferno of a global pandemic, to the fiery scourge of racism – (…)  If we don’t want to deploy tools of prevention in the future, we are dooming ourselves to a world of future devastation“.

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